Federal Reserve policymakers are set to vote this week on interest rate policy, and markets are anticipating that they will raise rates.
Policymakers at the Federal Reserve are set to vote this week on interest rate policy, and markets are anticipating that they will raise rates for the first time in three years.
Fed Chairman Kevin Warsh and the other members of the Federal Open Market Committee will cast their votes on Wednesday, and a rate increase seems likely following a string of reports showing strong hiring and elevated inflation.
It would mark the first Fed rate hike since 2023, when the central bank concluded a rapid tightening cycle to address the worst inflation in decades. After several rounds of cuts in 2024 and 2025, the overnight rate sits at a current range of 3.50% to 3.75%.
That hasn't been enough to keep recent inflation in check, with energy prices soaring this year as a result of disruption in global oil flows from the Iran war. But interest rates have been high enough to depress the housing market, which has now suffered through three straight years of weak sales.
Warsh admitted as much in his recent keynote address at the Fed's annual symposium in Jackson Hole, WY, saying that the housing market is "showing strains" despite the overall resilience of the economy.
So, a new round of rate hikes raises the prospect of further pain for the housing market. Already, mortgage rates have risen to their highest level in more than a year, as markets respond to inflation and game out future Fed policy moves.
Mortgage rates averaged 6.76% this week, according to Freddie Mac. That's the highest in 15 months, and rising rates have already put a dent in home sales for August, the latest data shows.
"Whether a Fed rate hike comes in September or not, the pressure on mortgage rates is here already and doesn’t show signs of relenting," says Realtor.com Chief Economist Danielle Hale.
The economist says that although "momentum has weakened," so far "buyers and sellers have navigated the higher rate environment relatively well."
The Fed doesn't directly set mortgage rates, which move in response to the bond market. Instead, the Fed sets the overnight rate for lending between commercial banks, using higher rates to fight inflation and lower rates to stimulate hiring.
What real estate agents say about Fed rates
Abraham Sarway, a real estate agent with Douglas Elliman in New York City, says the biggest impact of a Fed rate hike this week might be the blow it delivers to consumer confidence.
"If buyers believe rates will stay higher for longer, they become more deliberate about price, timing, and leverage," he says. "That can slow transaction volume even if mortgage rates themselves do not move materially, because uncertainty tends to delay decisions before it changes values."
Sarway believes that higher-for-longer rates may not immediately affect home prices, but they may keep buyers and sellers on the sidelines until confidence returns.
Jeremy Olsher, a principal at Mizner Residential Group in Florida, remains confident.
"The housing market is not about to go over a cliff," he tells Realtor.com. But, the Fed's "highly anticipated interest rate decision is forcing real estate professionals to pivot from 'waiting for relief' to navigating a persistent 'higher-for-longer' environment."
In Nashville, TN, Compass real estate agent Jake Kennedy says he doesn't expect the Fed meeting to change much of anything for his clients.
"Money has been expensive for a long time, and the majority of buyers and sellers have already adjusted their behavior," says Kennedy. "I will tell my clients the same thing I have been telling them for years: Don't buy or sell a house because of one Fed meeting. If you need to move, you will find a way to make the numbers work, even if it means renting for a year or two."
However, Christine Rordam, a real estate agent in Orlando, FL, is concerned that a rate hike will have the biggest impact on those who are already feeling the biggest pinch: first-time buyers and the middle class.
"Luxury buyers and sellers are not concerned with the rates as much, and many second-home buyers have enough funds to buy their rates down to begin with, so not all segments of the market will be negatively impacted," she says.
Rordam says that if mortgage rates remain at their elevated levels, sellers will be forced to compromise more on price, repairs, and concessions at closing.
"The sky is not falling, but sellers should be up to consider all offers now," she says. "Some buyers will in fact sit the market out until conditions improve."
Julie Gerstein contributed to this report.